Truck market has plenty of momentum in the United States

Feb. 5, 2016
THE Class 8 market in the United States will probably experience a dip from the wildly successful 2015, but all other segments will be up in 2016 and “we’ll be seeing lot of strength and momentum going forward,” according to Andrej Divis, head of Global Truck Research for IHS Global Insight.

THE Class 8 market in the United States will probably experience a dip from the wildly successful 2015, but all other segments will be up in 2016 and “we’ll be seeing lot of strength and momentum going forward,” according to Andrej Divis, head of Global Truck Research for IHS Global Insight.

“We think the US economy will be very resilient in the face of some of surprises and bad news it’s gotten,” Divis said. “We’re actually quite positive in our outlook for the year in heavy-duty truck sales in 2016.”

In his presentation, “Truck Application Markets in the NAFTA Region: Forecasts and Indicators,” Divis said the Class 1-2 market of pickups, chassis cabs, and cargo vans will grow this year and next year.

“It’s very much a reflection of how these trucks are used—home construction, sales, and renovation,” he said.

After a year in which truck sales in Class 4-8 were up 14%, he said Class 3 will experience slow growth through 2019 and Class 4-7 will be up next year and in 2017, and stable in 2018 and 2019. For Class 8, 2015 will be the peak, with a falloff from 2016 to 2018, and then a stabilization in 2019.

“Very likely we will start seeing some weakness,” he said of Class 8. “It’s 70% tractors and 30% straight trucks and traditional trucks. The last few years, it has been driven by tractors.

“Heading into 2016, we probably are not going to be running at the level we were. There will be some strengthening on the vocational side, but it won’t be enough to make a difference.

“A lot of the peaking we see is not really adding a massive number of trucks. It’s not adding capacity—it’s maintaining fleet capacity. We believe rates will rise once fuel surcharges are worked out.

“Expect Class 5 and 6 to accelerate, particularly Class 6, in line with an increase in home sales.”

He said worldwide truck sales look like they will be down slightly in 2015. Most BRIC markets (Brazil, Russia, India, China) will see declines.

“But we have had a very strong year in North America,” he said. “In many ways, this year is as expected. But for sure, everything was not as expected. Some things turned out differently than we thought. How does that change our view going into 2016?

“There was strong appreciation in the US dollar against other currencies to the tune of 10% to 15%. Oil prices were 60% down compared to last year. There are some reasons for uncertainty and stepping back and saying, ‘How stable is the outlook, really?’ Or, ‘How might it differ at the application market level compared to what we thought a year ago?’ ”

He said forecasts are built on economic outlook, and IHS Global Insight is looking for GDP growth to accelerate in 2016 and 2017.

“We see much of that being driven by a very solid basis and a lot of momentum on the household spending side that will drive consumption,” he said. “At the same time, we have very strong numbers coming in on the residential side for residential investment.

“We see government spending not necessarily contributing to growth, but not acting against growth, both on the federal and state level.

“US export growth will be stunted due to the strength of the dollar. When we showed this chart last year, the growth rates for imports and exports were pretty close. Now, we’re going to be importing a lot more than we’re exporting. It’s not enough to really knock things off course. Therefore, the trade gap should be a little bit of a headwind.

“The household consumption story is important. Much of that is due to employment, low inflation, and low energy prices. We have not created more jobs in the US since the crisis than we lost during the crisis in 2008 and 2009. Growth has been very broad-based. Services recorded the largest employment increases during the 12 months that ended August 2015. We have fully recovered from the recession.

“In the application markets, when we look at the truck market and analyze trucks, we’re looking at less than half of the economy—about 45% represent the truck line. That includes all kinds of industrial companies, chiefly in manufacturing. Out of that 45%, about half are industrial companies represented by manufacturing, mining, and utilities, and most of that is in manufacturing.”

He said when IHS Global Insight looks at US industrial production growth, there are really three stories:

•  “Some parts of manufacturing that are structurally in decline or experiencing structural changes. Some are set for decline and some for a period of rapid growth.”

•  “A cluster of manufacturing companies that are really geared toward households and consumerism, and they’re doing well.”

•  “Parts of manufacturing that are most exposed to international competition, and those are ones that are really hurting. Those are the ones that are driving down the growth rate in 2015.”

He said textiles and chemicals are facing a rapid structural change—textiles because of international competition, chemicals because they’re following natural gas prices and are set for a period of steady growth.

He said that the markets for motor vehicles and appliances will do well over the next few years, given the jobs growth we’re seeing, and the improvement in consumer confidence.

“Computers and electronics, and machinery, will suffer because of the strength of the dollar,” he said. “They will hit bottom this year and should be set for at least a flat recovery in 2016 and 2017. If you look beneath the surface, you see a pretty healthy basis for acceleration.

“The oil and gas decline is helping the rest of the economy in many ways. Prices of oil are off 60% this year. We don’t think OPEC is likely to reduce production any time soon. Our view is actually that the price of oil will fall a little farther before things really get in balance and we start to see a recovery in oil prices. There will be another quarter or so of declines. The price of oil will be just over $80 a barrel by 2019, then stabilizing.

“In natural gas, there’s been a lot of change in the industry. Prices are significantly down. We don’t see that changing fundamentally. Oil and gas extraction will bottom out in 2016, bouncing back in 2017. Coal has been in a long period of decline.

He said the construction spending outlook is divided into residential structures, nonresidential structures, and infrastructure.

“Last year was not a great year for residential construction,” he said, “but we see residential construction coming back. Nonresidential construction will contract slightly because of the energy industry. Going forward, with the building of factories and commercial real estate space, we see infrastructure being positive next year.”

US housing starts rose to almost an eight-year high in September, with builders ramping up construction of apartments, according to the Commerce Department. Construction of new homes increased 6.5% to a seasonally adjusted annual pace of 1.21 million units in September. Housing starts have now been above a pace of one million units for six straight months.

Divis said California, Nevada, Arizona, New Mexico, Iowa, Missouri, Kentucky, West Virginia, Pennsylvania, and Florida will have the highest residential construction spending. California and Florida had the sharpest drop, but are now bouncing back. New York and New Jersey are still contracting because of policy decisions. Slow states include Illinois, Idaho, Montana, Wyoming, and South Dakota.

In nonresidential construction, he said there is very little variance among states.

“Almost every state is right in line with the average,” he said.

The infrastructure market—including road construction—is much less positive, reflecting the difficulty of getting federal funding. The best markets for highways and streets are California and Florida.

He said the agriculture market—a very small purchaser of trucks—is benefitting from the decline in oil prices, profitability is being damaged by a drop in commodity prices.

“Don’t look for them to make big purchases,” he said.

Utilities are making some big investments in power plants, but he expects 2015 “will be a sideways year,” with a slight increase in 2016 that will fizzle out later.

Trucking remains the most important mode of transportation, accounting for 69.2% of freight. He said IHS expects truck tonnage to grow slowly in 2015 and then ramp up slightly in 2016.

“This year will be weaker than last, but we expect to see an acceleration in demand for shippers and for trucking in the near future in 2016 and 2017,” he said. “Only one or two of the commodities contributing to demand are expected to contract.

“Will this help profits? LTL profits are not strong due to the loss of the fuel surcharge. This will work itself out, and rates will increase in the next couple of years.”    ♦